There is a lesson here for Ottawa residents: be careful of what you wish for. The expansion of Ottawa’s Light Rail Transit (LRT) plan will likely lead to increased property values along its corridor, particularly as the city increases development potential (and density) to support its LRT plan. And increased property values lead directly to increased property taxes for those lucky people living in that corridor, as property assessment is based on property values.

Some might say that this is only just, since these people stand to benefit from having LRT so close by. But it illustrates the vagaries of using property values to determine your property tax liability. For one thing, nobody elected the property market to set property taxes; there is no-one to hold accountable here. And secondly, I doubt if anyone’s incomes increased as a result of the LRT going nearby, but higher property values will mean higher property taxes will have to be paid.

Property values are independent of personal income. A young family starting out living on the same street in the same style housing as a two-income no-kids professional couple will pay the same property taxes if their property assessments match. And the same can be said about the retired couple living on pension income next door. Not exactly a fair system. In fact, property taxes are deemed regressive by most economists.

And while it is pleasant to think that the wealthy living in mansions pay more property tax, the evidence shows that as wealth increases the proportion of income spent on property taxes actually decreases, another example of how regressive property taxes are.

My point here is that using property taxes based on the value of your home is inappropriate to fund major public projects, yet it is the only source of income cities have, other than user fees. And hiking transit user fees will drive away the very people who the city wants to use public transit. The better alternative is to use the revenues from ability-to-pay taxes (like income tax) to pay for major public projects such as LRT. The irony is that 100 years ago, cities had these taxes, before the federal and provincial governments expropriated them.

These fiscal arrangements need to be re-thought if cities, often touted as the engines for growth in the new economy, are to provide the public infrastructure to support economic growth. Property taxes can’t do it.

Alex Cullen is an economist and former Ottawa city councillor from 2000 to 2010.

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